PRINCIPAL FUNDS, INC.
AMENDED & RESTATED SUB-ADVISORY AGREEMENT
SMALLCAP GROWTH FUND I
AGREEMENT executed as of the April 25, 2014, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa Corporation
(hereinafter called "the Manager") and EMERALD ADVISORS, INC.
("Emerald") (hereinafter called "the Sub-Advisor").
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to
Principal Funds, Inc., (the "Fund"), an open-end management
investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Manager desires to retain the Sub-Advisor to furnish it
with portfolio selection and related research and statistical services in
connection with the investment advisory services for the SmallCap
Growth Fund II of the Fund (hereinafter called the "Series"), which the
Manager has agreed to provide to the Fund, and the Sub-Advisor desires
to furnish such services; and
WHEREAS, the Manager has furnished the Sub-Advisor with copies
properly certified or authenticated of each of the following and will
promptly provide the Sub-Advisor with copies properly certified or
authenticated of any amendment or supplement thereto:
(a) Management Agreement (the "Management Agreement")
between the Manager and the Fund;
(b) The Fund's registration statement as filed with the Securities and
Exchange Commission (the "Registration Statement");
(c) The Fund's Articles of Incorporation and By-laws;
(d) Policies, procedures or instructions adopted or approved by the
Board of Directors of the Fund relating to obligations and
services provided by the Sub-Advisor.
NOW, THEREFORE, in consideration of the promises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Advisor
In accordance with and subject to the Management Agreement,
the Manager hereby appoints the Sub-Advisor to perform the
services described in Section 2 below for investment and
reinvestment of the securities and other assets of the Series,
subject to the control and direction of the Fund's Board of
Directors, for the period and on the terms hereinafter set forth.
The Sub-Advisor accepts such appointment and agrees to
furnish the services hereinafter set forth for the compensation
herein provided. The Sub-Advisor shall for all purposes herein be
deemed to be an independent contractor and shall, except as
expressly provided or authorized, have no authority to act for or
represent the Fund or the Manager in any way or otherwise be
deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by the Sub-Advisor
(a) Provide investment advisory services, including but not
limited to research, advice and supervision, for the Series.
(b) Furnish to the Board of Directors of the Fund (or any
appropriate committee of such Board), and revise from time
to time as conditions require, a recommended investment
program for the portfolio of the Series consistent with the
Series' investment objective and policies as set forth in the
Registration Statement, as may be amended from time to
time.
c) Implement such of its recommended investment program as
the Board of Directors (or any appropriate committee of the
Board) shall approve, by placing orders for the purchase and
sale of securities, subject always to the provisions of the
Fund's Articles of Incorporation and Bylaws and the
requirements of the 1940 Act, as each of the same shall be
from time to time in effect.
(d) Advise and assist the officers of the Fund, as reasonably
requested by the officers, in taking such steps as are
necessary or appropriate to carry out the decisions of its
Board of Directors, and any appropriate committees of such
Board, regarding the general conduct of the investment
business of the Series.
(e) Report to the Board of Directors of the Fund at such times
and in such detail as the Board of Directors may deem
appropriate in order to enable it to determine that the
investment policies, procedures and approved investment
program of the Series are being observed.
(f) Upon reasonable request, provide assistance and
recommendations for the determination of the fair value of
certain securities when market quotations are not readily
available for purposes of calculating net asset value in
accordance with procedures and methods established by the
Fund's Board of Directors.
(g) Furnish, at its own expense, (i) all necessary investment and
management facilities, including salaries of clerical and other
personnel required for it to execute its duties faithfully, and
(ii) administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for the efficient conduct
of the investment advisory affairs of the Series. Except for
expenses specifically assumed or agreed to be paid by the
Sub-Advisor under this Agreement, the Sub-Advisor shall not
be liable for any expenses of the Manager, the Fund or the
Series including, without limitation, (i) interest and taxes, (ii)
brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment
instruments with respect to the Series, and (iii) custodian
fees and expenses.
(h) Open accounts with broker-dealers and future commission
merchants ("broker-dealers"), select brokers and dealers to
effect all transactions for the Series (which may include
brokers or dealers affiliated with the Sub-Advisor, provided
such transactions comply with applicable requirements
under the 1940 Act), place all necessary orders with brokers,
dealers, or issuers, and negotiate brokerage commissions, if
applicable. To the extent consistent with applicable law,
purchase or sell orders for the Series may be aggregated
with contemporaneous purchase or sell orders of other
clients of the Sub-Advisor. In such event, allocation of
securities so sold or purchased, as well as the expenses
incurred in the transaction, will be made by the Sub-Advisor
in a manner the Sub-Advisor considers to be equitable and
consistent with its fiduciary obligations to the Series and to
other clients. The Sub-Advisor shall use its best efforts to
obtain execution of transactions for the Fund at prices that
are advantageous to the Fund and at commission rates that
are reasonable in relation to the benefits received. In doing
so, the Sub-Advisor may select brokers or dealers on the
basis that they also provide brokerage, research or other
services or products to the Sub-Advisor. To the extent
consistent with applicable law, the Sub-Advisor may pay a
broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission
or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor
determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and
research products and/or services provided by such broker
or dealer. This determination, with respect to brokerage and
research products and/or services, may be viewed in terms
of either that particular transaction or the overall
responsibilities which the Sub-Advisor and its affiliates have
with respect to the Series as well as to accounts over which
they exercise investment discretion. Not all such services or
products need be used by the Sub-Advisor in managing the
Series. In addition, joint repurchase or other accounts may
not be utilized by the Series except to the extent permitted
under any exemptive order obtained by the Sub-Advisor and
provided that all conditions of such order are complied with.
(i) Maintain all accounts, books and records with respect to the
Series as are required of an investment adviser of a
registered investment company pursuant to the 1940 Act
and Investment Advisers Act of 1940, as amended, (the
"Investment Advisers Act"), and the rules thereunder, and
furnish the Fund and the Manager with such periodic and
special reports as the Fund or Manager may reasonably
request. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Advisor hereby agrees that all
records that it maintains for the Series are the property of the
Fund and it will surrender promptly to the Fund any records
that it maintains for the Series upon request by the Fund or
the Manager provided, however, that the Sub-Advisor may
retain a copy of such records. The Sub-Advisor has no
responsibility for the maintenance of Fund records except
insofar as is directly related to the services provided to the
Series.
(j) Observe and comply with Rule 17j-1 under the 1940 Act
and the Sub-Advisor's Code of Ethics adopted pursuant to
that Rule as the same may be amended from time to time.
The Manager acknowledges receipt of a copy of Sub-
Advisor's current Code of Ethics. The Sub-Advisor shall
promptly forward to the Manager a copy of any material
amendments to the Sub-Advisor's Code of Ethics.
(k) From time to time as the Manager or the Fund may
reasonably request, furnish the requesting party reports on
portfolio transactions and reports on investments held by
the Series, all in such detail as the Manager or the Fund
may reasonably request. The Sub-Advisor will make
available its officers and employees to meet with the Fund's
Board of Directors at reasonable times at the Fund's
principal place of business upon reasonable notice to
review the investments of the Series.
(l) Provide such information as may be required for the Fund
or the Manager to comply with their respective obligations
under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"),
the 1940 Act, the Investment Advisers Act, the Securities
Act of 1933, as amended (the "Securities Act"), and any
state securities laws, and any rule or regulation thereunder.
(m) Maintain, in connection with the Sub-Advisor's investment
advisory services obligations provided hereunder,
compliance with the 1940 Act and the regulations adopted
by the Securities and Exchange Commission thereunder
and each Series' investment strategies and restrictions as
stated in the Series' current prospectus and statement of
additional information.
(n) Provide to the Manager a copy of its Form ADV as filed with
the Securities and Exchange Commission, as amended
from time to time, and a list of the persons whom the Sub-
Advisor wishes to have authorized to give written and/or
oral instructions to custodians of assets of the Series.
3. Prohibited Conduct
In providing the services described in this agreement, the Sub-
Advisor will not consult with any other investment advisory firm
that provides investment sub-advisory services to the Fund or a
fund that is under common control with the Fund regarding
transactions for the Fund in the securities or other assets
allocated to the Sub-Advisor pursuant to this Agreement, except
as permitted by Rule 12d-3-1 under the 1940 Act.
4. Compensation
As full compensation for all services rendered and obligations
assumed by the Sub-Advisor hereunder with respect to the
Series, the Manager shall pay the compensation specified in
Appendix A to this Agreement. Although the Manager may from
time to time waive the compensation it is entitled to receive from
the Series, such waiver will have no effect on the Manager's
obligation to pay the Sub-Advisor the compensation provided for
herein.
5. Liability of Sub-Advisor
Neither the Sub-Advisor nor any of its directors, officers or
employees shall be liable to the Manager, the Fund, the Series
or any shareholder of the Fund for any loss suffered by the
Manager, the Fund, the Series or any shareholder of the Fund
resulting from any error of judgment made in the good faith
exercise of the Sub-Advisor's investment discretion in connection
with selecting investments for the Series except for losses
resulting from willful misfeasance, bad faith or gross negligence
of, or from reckless disregard of, the duties of the Sub-Advisor or
any of its directors, officers or employees. The Manager shall
hold harmless and indemnify the Sub-Advisor for any loss,
liability, cost, damage or expense (including reasonable
attorneys fees and costs) arising from any claim or demand by
any past or present shareholder of the Series or the Fund that is
not based upon the obligations of the Sub-Advisor with respect
to the Series under this Agreement. The Manager acknowledges
and agrees that the Sub-Advisor makes no representation or
warranty, express or implied, that any level of performance or
investment results will be achieved by the Series or that the
Series will perform comparably with any standard or index,
including other clients of the Sub-Advisor, whether public or
private.
6. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other
persons affiliated with the Sub-Advisor for the provision of certain
personnel and facilities to the Sub-Advisor to better enable it to
fulfill its obligations under this Agreement.
7. Regulation
The Sub-Advisor shall submit to all regulatory and administrative
bodies having jurisdiction over the services provided pursuant to
this Agreement any information, reports or other material which
any such body may request or require pursuant to applicable
laws and regulations.
8. Manager's Representations
The Manager represents and warrants that (i) it is registered as
an investment adviser under the Investment Advisers Act and
will continue to be so registered for so long as this Agreement
remains in effect; (ii) it is not prohibited by the 1940 Act or the
Investment Advisers Act from performing the services
contemplated by this Agreement; (iii) it has met, and will continue
to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory
agency, necessary to be met in order to perform the services
contemplated by this Agreement; (iv) it has the authority to enter
into and perform the services contemplated by this Agreement,
and (v) it will immediately notify the Sub-Advisor of the
occurrence of any event that would disqualify the Manager from
serving as an investment advisor of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
9. Duration and Termination of This Agreement
This Agreement shall become effective as of the date of
execution and, unless otherwise terminated, shall continue in
effect thereafter from year to year provided that the continuance
is specifically approved at least annually either by the Board of
Directors of the Fund or by a vote of a majority of the outstanding
voting securities of the Series and in either event by a vote of a
majority of the directors of the Fund who are not interested
persons of the Manager, Principal Life Insurance Company, the
Sub-Advisor or the Fund cast in person at a meeting called for
the purpose of voting on such approval.
If the shareholders of the Account fail to approve the Agreement
or any continuance of the Agreement in accordance with the
requirements of the 1940 Act, the Sub-Advisor will continue to
act as Sub-Advisor with respect to the Account pending the
required approval of the Agreement or its continuance or of any
contract with the Sub-Advisor or a different manager or
sub-advisor or other definitive action; provided, that the
compensation received by the Sub-Advisor in respect to the
Account during such period is in compliance with Rule 15a-4
under the 1940 Act.
This Agreement may, on sixty days written notice, be terminated
at any time without the payment of any penalty, by the Board of
Directors of the Fund, the Sub-Advisor or the Manager or by vote
of a majority of the outstanding voting securities of the Series.
This Agreement shall automatically terminate in the event of its
assignment or upon termination of the Management Agreement.
In interpreting the provisions of this Section 9, the definitions
contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person," "assignment" and "voting
security") shall be applied.
10. Indemnification
(a) The Sub-Advisor agrees to indemnify and hold harmless
the Manager, any affiliated person within the meaning of
Section 2(a)(3) of the 1940 Act ("affiliated person") of the
Manager and each person, if any who, within the meaning
of Section 15 of the Securities Act controls ("controlling
persons") the Manager, against any and all losses, claims,
damages, liabilities or litigation, including reasonable legal
expenses (collectively "Losses") to which the Manager or
such affiliated person or controlling person of the Manager
may become subject under the Securities Act, the 1940 Act,
the Investment Advisers Act, under any other statute, law,
rule or regulation at common law or otherwise, arising out of
the Sub-Advisor's responsibilities hereunder (1) to the
extent of and as a result of the willful misconduct, bad faith,
or gross negligence by the Sub-Advisor, any of the Sub-
Advisor's employees or representatives or any affiliate of or
any person acting on behalf of the Sub-Advisor; or (2) as a
result of any untrue statement of a material fact contained
in the Registration Statement, including any amendment
thereof or any supplement thereto, or the omission to state
therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon
and in conformity with written information furnished by the
Sub-Advisor to the Manager specifically for use therein;
provided, however, that in no case is the Sub-Advisor's
indemnity in favor of the Manager or any affiliated person or
controlling person of the Manager deemed to protect such
person against any liability to which any such person would
otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and
duties under this Agreement.
(b) The Manager agrees to indemnify and hold harmless the
Sub-Advisor, any affiliated person and any controlling
person of the Sub-Advisor, if any, against any and all
Losses to which the Sub-Advisor or such affiliated person
or controlling person of the Sub-Advisor may become
subject under the Securities Act, the 1940 Act, the
Investment Advisers Act, under any other statute, law, rule
or regulation, at common law or otherwise, arising out of the
Manager's responsibilities as investment manager of the
Fund (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by the Manager,
any of the Manager's employees or representatives or any
affiliate of or any person acting on behalf of the Manager, or
(2) as a result of any untrue statement of a material fact
contained in the Registration Statement, including any
amendment thereof or any supplement thereto, or the
omission to state therein a material fact required to be
stated therein or necessary to make the statement therein
not misleading; provided, however, that in no case is the
Manager's indemnity in favor of the Sub-Advisor or any
affiliated person or controlling person of the Sub-Advisor
deemed to protect such person against any liability to which
any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the
performance of its duties or by reason of its reckless
disregard of its obligations and duties under this
Agreement. It is agreed that the Manager's indemnification
obligations under this Section will extend to expenses and
costs (including reasonable attorneys fees) incurred by the
Sub-Advisor as a result of any litigation brought by the
Manager alleging the Sub-Advisor's failure to perform its
obligations and duties in the manner required under this
Agreement unless judgment is rendered for the Manager.
11. Amendment of this Agreement
This Agreement may be amended at any time by mutual consent
of the parties, provided that, if required by law, such amendment
shall also have been approved by vote of the holders of a
majority of the outstanding voting securities of the Series and by
vote of a majority of the Directors of the Fund who are not
interested persons of the Manager, the Sub-Advisor, Principal
Life Insurance Company or the Fund cast in person at a meeting
called for the purpose of voting on such approval.
12. General Provisions
(a) Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the
State of Iowa. The captions in this Agreement are included
for convenience only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect.
(b) Any notice under this Agreement shall be in writing,
addressed and delivered or mailed postage pre-paid to the
other party at such address as such other party may
designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the address of the
Manager for this purpose shall be the Principal Financial
Group, Xxx Xxxxxx, Xxxx 00000-0000, and the address of
the Sub-Advisor shall be 0000 Xxxxxx Xxxx, X.X. Xxx
00000, Xxxxxxxxx, XX 00000-0000.
(c) Each party will promptly notify the other in writing of the
occurrence of any of the following events:
(1) the party fails to be registered as an investment adviser
under the Investment Advisers Act or under the laws of
any jurisdiction in which the party is required to be
registered as an investment adviser in order to perform
its obligations under this Agreement.
(2) the party is served or otherwise receives notice of any
action, suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, public board or body,
involving the affairs of the Series.
(d) The Manager shall provide (or cause the Account custodian
to provide) timely information to the Sub-Advisor regarding
such matters as the composition of the assets of the
Account, cash requirements and cash available for
investment in the Account, any applicable investment
restrictions imposed by state insurance laws and regulations,
and all other reasonable information as may be necessary
for the Sub-Advisor to perform its duties and responsibilities
hereunder.
(e) The Manager will provide Sub-Advisor promptly with any
changes to the Fund's Articles of Incorporation, By-laws,
registration statement, policies, procedures, instructions, and
any other document relevant to the Sub-Advisor's
management of the Account. The parties agree that the
Sub-Advisor is not responsible for compliance with any such
changes until notified and provided with a written copy of
such change.
(f) The Sub-Advisor acknowledges that the Series is relying on
the exclusion from the definition of "commodity pool
operator" under Section 4.5 of the General Regulations under
the Commodity Exchange Act ("Rule 4.5"). The Sub-
Advisor will not exceed the de minimis trading limits set forth
in Rule 4.5(c)(2)(iii)(B) unless otherwise agreed to in writing.
(g) The Sub-Advisor agrees that neither it nor any of its
affiliates will in any way refer directly or indirectly to its
relationship with the Fund, the Series, or the Manager or any
of their respective affiliates in offering, marketing or other
promotional materials without the express written consent of
the Manager.
(h) This Agreement contains the entire understanding
and agreement of the parties.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the date first above written.
PRINCIPAL
MANAGEMENT CORPORATION
By
_________________________________________
EMERALD
ADVISORS, INC.
By
_________________________________________
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the
Series. With respect to the Series, the Manager will pay the
Sub-Advisor, as full compensation for all services provided under this
Agreement, a fee computed at an annual rate as follows (the
"Sub-Advisor Percentage Fee"):
SmallCap Growth Fund I
Net Asset Value of Fund Sub-Advisor
Percentage Fee
First $200 million
0.50%
Over $200 million
0.45%
In calculating the fee for the Series, assets of any unregistered
separate account of Principal Life Insurance Company and any
investment company sponsored by Principal Life Insurance Company to
which the Sub-Advisor provides investment advisory services and which
have the same investment mandate as the Series, will be combined
(together, the "Aggregated Assets"). The fee charged for the assets in
the Series shall be determined by calculating a fee on the value of the
Aggregated Assets and multiplying the aggregate fee by a fraction, the
numerator of which is the amount of assets in the Series and the
denominator of which is the amount of the Aggregated Assets.
The Sub-Advisor Percentage Fee shall be accrued for each calendar day
and the sum of the daily fee accruals shall be paid monthly to the
Sub-Advisor. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
applicable annual rate described above and multiplying this product by
the net assets of the Series as determined in accordance with the Fund's
prospectus and statement of additional information as of the close of
business on the previous business day on which the Series was open for
business. Cash and cash equivalents shall be included in the Series net
assets calculation up to a maximum of 1.00% of the Series net assets. If
the Manager requests the Sub-Advisor to raise cash in the Series
portfolio in excess of 1.00% of the Series net assets for the purpose of
funding redemptions from the Series, such amount requested shall be
included in the Series net assets calculation.
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